The European Public Prosecutor’s Oﬃ ce and Hungary

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The European Public Prosecutor’s Oﬃ ce and Hungary

Challenge or Missed Opportunity?

TRANSPARENCY INTERNATIONAL

HUNGARY HUNGARY

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This document is a background study for the research project titled “New European Anti-Fraud Landscape in Hungary: Challenges and Missed Opportunities” implemented from a grant received from the European Anti-Fraud Office by Transparency International Hungary Foundation through tendering.

Project number: 878595 - NEALHU

The study – with the exception of the Executive summary and Chapters 5 and 7 – was prepared by Dr. Krisztina Karsai on assignment of Transparency International Hungary Foundation.

The Executive summary and Chapters 5 and 7 were prepared by Transparency International Hungary Foundation, which also completed the editorial tasks.

The text was finalised on 30 November 2020. Transparency International Hungary Foundation accepts no liability for the use of the data and findings in the study for any other purpose or in any other context.

This publication is supported by the European Union Programme Hercule III (2014–2020).

This programme is implemented by the European Commission. It was established to promote activities in the field of the protection of the financial interests of the European Union.

For more information see: https://ec.europa.eu/anti-fraud/policy/hercule_en

The study represents the opinion of Transparency International Hungary Foundation and of the Author. The European Commission accepts no liability for any information contained in the study.

ISBN 978-615-80267-8-9

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Executive summary

For the 2014–2020 programming period, Hungary receives financial support amounting to approximately EUR 25 billion (almost HUF 9 thousand billion at September 2020 exchange rates) from the European Structural and Investment Funds. The amount is expected to be at least the same during the 2021–2027 budget cycle, together with the money to be received from the recovery plan. This represents 4 percent of the Hungarian GDP on average annually. In the 2014–2020 programming period, Hungary ranks fifth among the Member States of the Euro- pean Union in terms of per capita EU funding. Transparency International Hungary Foundation (hereinafter referred to as “TI-Hungary”) has called attention to the corruption risks surrounding the use of these extremely large funds on numerous occasions. In 2015, TI-Hungary was the first in Hungary to pinpoint one of the key systemic corruption risks associated with the use of EU funds, namely the absorption pressure resulting in overpricing. The government declared on several occasions that its primary objective was to use as much EU funds as quickly as possible.¹ The practical implementation of this objective is one of the major sources of institutionalised abuses.

The Member States and the European Commission share the responsibility for overseeing the use of EU funds, however, the primary responsibility lies with the Member States. In other words, first and foremost Member States, more specifically the judicial authorities of Member States are tasked with combating fraud affecting the financial interests of the European Union.

In Hungary, in addition to the various auditing and investigating authorities, the prosecution service plays a key role in protecting the EU’s financial interests, as it has the sole responsibility for bringing perpetrators to justice. For many years, however, the prosecution service has let the perpetrators off the hook in cases embarrassing to the government. This no longer applies in every case: examples include Roland Mengyi, a former ruling party MP, who was sentenced to time in prison for budget fraud as well as György Simonka and István Boldog, current Fidesz MPs, both prosecuted for the suspected misappropriation of EU funds.²

1 https://www.kormany.hu/hu/innovacios-es-technologiai-miniszterium/europai-unios-fejlesztesekert-felelos-allamtitkar/

hirek/magyarorszag-toronymagasan-vezet-a-regioban-az-unios-forrasok-felhasznalasa-teren

2 The sources related to the three aforementioned government party politicians are quoted in TI-Hungary’s report titled Corruption, Economic Performance and Rule of Law in Hungary – The Results of the Corruption Perception Index in 2019:

https://transparency.hu/wp-content/uploads/2020/02/Korrupci%C3%B3-gazdas%C3%A1gi-teljes%C3%ADtm%C3%A9ny-

%C3%A9s-jog%C3%A1llamis%C3%A1g-Magyarorsz%C3%A1gon-CPI-2019-EN-1.pdf

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In other cases that are particularly delicate for the government, the perpetrators and ben- eficiaries of corruption can safely rely on the benevolent inaction of the prosecution service.

This is how the stakeholders in the Elios case, including the son-in-law of Prime Minister Viktor Orbán, have evaded prosecution even though according to OLAF, the European Union’s Anti- Fraud Office, they embezzled approximately HUF 13 billion (EUR 43 million) public funds with mafia methods.³ The perpetrators of the irregularities surrounding the “Bridge to the World of Work” project associated with the National Roma Self-Government, previously headed by pro- government MP Flórián Farkas and resulting in billions in refunds have also evaded prosecution until now.⁴

It is obvious that Hungary is not the only country where concerns are raised about the regularity of the use of EU funds and it is presumable that the national authorities of other Member States will also look the other way occasionally when it comes to corruption against the joint Brussels budget. However, TI-Hungary is primarily concerned by the situation in Hungary as we believe that the efficiency of the fight against corruption, including against EU fraud, is inade- quate. We are aware that the European Public Prosecutor’s Office (hereinafter referred to as

“EPPO”) is not going to work miracles in itself and even if Hungary were to join (as we urge it to do) we could not hope to see a significant decline in corruption in the short term. At the same time, we are also convinced that EU-wide action going beyond a narrow and false interpretation of national interest would certainly be effective in combating corruption and fraud.

This study discusses the main issues associated with the EPPO. The protection in general of the European Union’s financial interests and the anti-fraud measures are not the subject of our research and the study does not cover the human rights guarantees⁵ relating to the operation of the EPPO either. TI-Hungary is interested in whether the EPPO will be able to achieve a breakthrough in the fight against corruption. Accordingly, in the study we primarily examine whether the operating environment and the regulations pertaining to the organisation and scope of the EPPO foreseeably enable it to fulfil its mandate. Secondly, we will also consider how the operation of the EPPO will impact Hungary. As a non-participating country, can and should we expect the EPPO to be able to influence the efficiency of the fight against corrupt practices in Hungary? Will any specific risks stem from Hungary’s non-participation in the EPPO?

The EPPO extends EU integration into a thus far unaffected territory of criminal justice. There- fore, there is a lot at stake as the operation of the EPPO must also answer the question to what degree can the EU create new capabilities in the field of law enforcement. The protection of the

3 See the official communication of the prosecution service: http://ugyeszseg.hu/reagalas-javor-benedek-ugyeszseggel- kapcsolatosmai-valotlan-allitasaira/

4 Of the extensive press coverage on the topic, see the article by József Spirk: Itt az OLAF-jelentés a Farkas Flórián regnálása alatt elherdált 1,6 milliárdról [Here is the OLAF report about the HUF 1.6 billion wasted during the reign of Flórián Farkas]:

https://24.hu/belfold/2019/06/21/itt-az-olaf-jelentes-a-farkas-florian-regnalasa-alatt-elherdalt-16-milliardrol/?_

ga=2.11183028.1841777718.1561028343-1797508791.1537555946

5 See for example Ruggeri (2018).

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European Union’s financial interests, however, will definitely become more effective as there is reason to believe that the EPPO will launch the necessary procedures and will conduct the investigations contrary to the inactivity or reluctance of Member States’ prosecution services.

Non-participating countries, probably loudest among them Hungary, claim that the establishment of the EPPO violates their sovereignty. This argumentation is not unprecedented in the history of EU integration, it was used against the establishment of OLAF and most recently in relation to the Eurojust reform, too. These arguments, however, are false. The EPPO is founded on the legal basis provided for in the primary law of the European Union (Article 86 of the Treaty on the Functioning of the European Union), therefore, the legal objections against the establishment thereof are in fact meaningless. The Hungarian Government’s constitutional argument against the EPPO is based on Article 29(1) of the Fundamental Law of Hungary.

It provides that in Hungary, the prosecution service shall exclusively exercise the State’s power to punish, i.e., it holds the monopoly to prosecute criminal offences.⁶ This claim is unfounded as even these minor concerns could be easily allayed by the amendment of the relevant Article of the Fundamental Law. This also shows that sovereignty is not an argument but rather a political slogan in the domestic discourse surrounding the EPPO. As regards the Hungarian Government’s argument for protecting sovereignty, it should be noted that by the 2007 ratifi- cation of the Lisbon Treaty resulting in the Treaty on the Functioning of the European Union, Hungary expressly accepted the possibility of the establishment of the EPPO.⁷

Out of the 27 Member States of the European Union, 22 participate in the enhanced cooperation on the establishment of the EPPO, which in itself confirms that there is a genuine need behind the idea of the EPPO. The example of Member States joining later shows that change can only be brought about by a transformation in the national political landscape rather than in the professional discretion. In other words, participation in the EPPO primarily appears as a political rather than a professional issue in Member States.

The establishment of the EPPO is determined by compromises, the most important of which is probably that its operation does not fall within the exclusive remit of the European Union due to the choice of legal basis. Instead, it belongs to the scope of the area of freedom, security and justice, which, as a Union policy, falls within the sphere of shared competence of the Member States and the Union. This in practice means that an unanimous decision by the Member States

6 TI-Hungary is of the opinion that the monopoly of Hungary’s prosecution service to prosecute criminal offences is not intended to serve as a counterargument against the EPPO, but it serves rather to prevent the future authorisation of state organs other than the prosecution service to bring criminal cases before justice as private prosecutors. See also Hungary’s Act on Criminal Procedure, which prohibits state organs to bring private prosecution.

7 The original idea was to establish the EPPO pursuant to Article 86 TFEU, see the Commission’s Proposal for a Council Regula- tion on the establishment of the EPPO, COM(2013)534 final – 2013/0255(APP), however, this proposal was rejected by several Member States, including Hungary. Thereafter, certain Member States decided to announce an enhanced cooperation aimed at the establishment of the EPPO.

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was required for adopting the regulation on the establishment of the EPPO. From this perspec- tive, the fact that the EPPO was established in the form of enhanced cooperation was significant because the requirement of unanimity was to be met only in respect of Member States involved in the enhanced cooperation. Another major political compromise is the absence of an open tender procedure in the selection of European Prosecutors. European Prosecutors are proposed by the Member States, which is a clear sign of political influence. The compromise in this case could be that the Member States retain control over the selection of European Pros- ecutors while they cannot influence the operation of the EPPO. However, the consequences following from the fact that the establishment of the EPPO was politically determined will later on be dampened by the “legalising nature” of EU integration. These compromises, in themselves of a political nature, reached in topics ab ovo saturated with political overtones and dominated by Member State interests, are in practice implemented in a legal framework. In other words, the EPPO will work as an unpoliticized professional organisation that, through its operation, can prove that it is indeed capable of performing its law enforcement role independently from Member State interests.

The EPPO may be capable of more effectively prosecuting crimes against the European Union’s financial interests, in particular in the case of cross-border crimes. In this regard, the EPPO promotes better adaptation to changes in criminality. However, the success of the EPPO in cases where Member State prosecutors are currently idle will be dependent upon its ability to enforce its interests in the Member States, and the EPPO should also be prepared for obstruc- tion of its work by the Member State authorities.

The EPPO will work within the framework of enhanced cooperation which means it will not be able to proceed in each Member State. As matters currently stand, only Hungary and Poland are certain to not participate in the enhanced cooperation aimed at the establishment of the EPPO, since the non-participating Member States of Denmark and Ireland are ab ovo not involved in EU cooperation in the area of justice and home affairs (i.e., in the EU policy of an area of freedom, security and justice), while Sweden, who formerly refused to participate in the EPPO, changed its mind and indicated its intention to participate. As a non-participating Member State, Hungary will not have a say in the development processes of the EPPO, as it will exclude itself from the work aimed at the amendment of the legislation related to the EPPO.

This poses a problem because in the long run hopefully all Member States will participate in the EPPO and being left to observe the developments from the sideline will restrict Hungary’s scope of action at the time of joining. It was precisely out of this consideration that the Nether- lands decided to change its formerly negative position, since as a result of joining the EPPO, it can participate in the development process and the shaping of the relevant regulation.

The increase in fraud and corruption against EU funds is also a significant risk. If we expect the EPPO to uncover a higher ratio of such criminal offences, then the risk of offending is higher in countries that are “invisible” to the EPPO. This may be regarded as a manifestation of forum

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shopping as there is reason to believe that the perpetrators of serious and typically pre- meditated corruption will choose a country for the commission of the offence where the EPPO is unable to proceed. This may also imply a more active role by OLAF as there is ground to pre- sume that the Commission will focus on Member States that do not participate in the EPPO.

Accordingly, as a non-participating country, Hungary also runs the risk of becoming a safe haven for white collar criminals and this certainly cannot be regarded as a national interest justified by the protection of sovereignty.

Furthermore, Hungary will not be able to fully dissociate itself from the operation of the EPPO, even as a non-participating country. On the one hand, the EPPO will have the right to prosecute Hungarian citizens who commit an offence that falls within its competence, provided that such offence is committed in the territory of a Member State that participates in the EPPO. On the other hand, the EPPO will also be able to proceed if a citizen of a participating Member State commits an offence in Hungary that falls within the competence of the EPPO. At the same time, Hungarian authorities will also be able to act in the aforementioned cases, therefore, conflicts of jurisdiction may arise between Hungary and the EPPO. If an offence falls within the competence of both the EPPO and a non-participating Member State, such as Hungary, a race for precedence may ensue. Its destructive effect may manifest itself in a final decision adopted in the Member State, such as a dismissal or acquittal, which may prevent the EPPO from con- ducting a subsequent procedure due to the right not to be tried twice for the same offence (the ne bis in idem effect). In Hungary, outrageously, whether or not law enforcement can perform its duties is influenced by political considerations and, therefore, the possibility that a biased decision is made as a result of an unfair procedure in order to render the work of the EPPO impossible provides cause for concern. This would also entail the expansion of impunity of corruption in the entirety of the European Union.

The condoning of corrupt practices by a Member State not participating in the EPPO is an indi- cation that the judiciary is not independent in the given Member State. Moreover, such Member State also directly violates the laws of the European Union, as the effective prosecution of offences against the European Union’s financial interests is an obligation of all Member States.

In other words, while joining or not joining the EPPO is up to each Member State, the protection of the Union’s financial interests is a first-hand obligation, and failure to meet this obligation violates EU law and results in the impunity of the perpetrator. These negative effects could only be fully eliminated if all Member States joined the EPPO.

In this study, TI-Hungary argues that one of the keys to effective action to contain corruption and other offences against public funds (and the one of the many requiring the least effort) would be for Hungary to join the EPPO.

Transparency International Hungary Foundation

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1. Enhanced cooperation on the European Public Prosecutor’s Office

The idea of a European Public Prosecutor’s Office⁸ was born during a project on jurisprudence funded by the Commission and titled Corpus Juris Europae⁹ in 1997. The response to the project was strong and, owing to the professional discourse, the idea became a point of discussion within Europe.¹⁰ As a result, it was already included in the draft of the Treaty of Nice (2001), however, it was removed from the agenda during the negotiations and eventually deleted from the text. Thereafter, both the academic and the professional discourse were essentially halted, as many regarded the deletion of the idea from the Treaty of Nice as a failure that put the idea of the EPPO to an end. However, the EPPO as a potential solution was not entirely forgotten.

The progress made in the integration of criminal law (the increased value of the principle of mutual recognition, the deepening of legal harmonization in the field of substantive and procedural law), the codification by means of the Treaty of Lisbon in Article 86 of the Treaty on the Functioning of the European Union (hereinafter referred to as “TFEU”), and the painful lack of effective protection of the EU’s financial interests all suggested that it was necessary to establish the EPPO, preferably with the involvement of all Member States.¹¹

The Commission proposed a regulation in 2013,¹² which, however, was not adopted following the so-called yellow card procedure.¹³ Thereafter, having regard to the main objections of national parliaments, such as that the range of offences against the financial interests is not duly regulated, serious professional and political discourse took place, one of the key outcomes of

8 Several research papers have been published about the EPPO since the idea was first raised; the academic discourse has been more or less uninterrupted in the last 20 years. For this study, we have used a selection of the literature on the concept to be implemented and the analysis of the currently known rules.

9 Delmas-Marty (2000).

10 Green Paper on Criminal-Law Protection of the Financial Interests of the Community and the Establishment of a European Prosecutor /* COM/2001/0715 final */

11 For instance, it was a thematic priority in 2010 during the Spanish presidency.

12 Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office, COM/2013/0534 final - 2013/0255 (APP); Commission staff working document impact assessment (2013) accompanying the Proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office, SWD (2013) 274 final: https://ec.europa.eu/info/

law/cross-border-cases/judicial-cooperation_en

13 According to Article 6 of Protocol (No. 2) on the application of the principles of subsidiarity and proportionality attached to the TFEU, the Treaty on the European Union and the Treaty establishing the European Atomic Energy Community, any national parliament may, within eight weeks from the date of transmission of a draft legislative act, send to the Presidents of the European Parliament, the Council and the Commission a reasoned opinion stating why it considers that the draft in question does not comply with the principle of subsidiarity. In this procedure, the national parliaments of 11 Member States (including the Hungarian Parliament) argued that the draft regulation violated the principle of subsidiarity.

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which was the adoption of the directive on the fight against fraud to the Union’s financial interests by means of criminal law.¹⁴ It later became clear that although there was consensus between Member States on the protection of the European Union’s financial interests by means of criminal law, not all Member States were ready to unite and jointly exercise their power to punish (i.e., to join the EPPO). Not even in 2014 when, during the Greek presidency, the concept of the EPPO was fundamentally transformed compared to its previous versions, and the idea of a centralised single office with exclusive powers was replaced by the model of a more decentralised collegiate type of organisation based on the division of labour.

However, these changes and developments paved the way to the announcement by 16 Member States¹⁵ of the European Union of establishing enhanced cooperation on the establishment of the EPPO on 3 April 2017. The same Member States launched a legislative procedure on 8 June 2017 and the Council adopted the regulation on the EPPO on 12 October 2017.¹⁶ By then, another four countries (Austria, Estonia, Italy, Latvia) joined the enhanced cooperation. The Netherlands and Malta joined the enhanced cooperation most recently, increasing the number of participating Member States to a total of 22. Of the 27 EU Member States, Denmark and Ireland tend to follow their own path in the field of justice and home affairs (within the framework of the so-called “opt-in” and “opt-out” options), a reason why one may conclude that only three Member States, namely Hungary, Sweden and Poland did in effect not join the enhanced cooperation. As Sweden in April 2019 expressed its intent to join, only Hungary and Poland may be regarded as actual non-participating Member States.

14 Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the Fight against Fraud to the Union’s Financial Interests by means of Criminal Law, OJ L 198, 28.7.2017, 29–42. Hereinafter referred to as “Directive”.

15 Belgium, Bulgaria, Chechia, Croatia, Cyprus, Germany, Greece, Finland, France, Lithuania, Luxemburg, Portugal, Romania, Slovakia, Slovenia, and Spain.

16 Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office, OJ L 283, 31.10.2017, 1–71. Hereinafter referred to as “Regulation”.

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2. The structure and competence of the EPPO

Enhanced cooperation is an important and innovative legal instrument of EU integration.

Originally it was created through the amendment of the Treaty of Amsterdam in order to offer a legal framework for the closer cooperation between certain Member States aimed at the implementation of the Union’s objectives. It allows Member States committed to a certain EU goal to make headway even if their consensus does not suffice for a majority decision. The rules of an enhanced cooperation and the fact that the TFEU offers this solution in cases where the majority decision-making mechanism within the area of freedom, security and justice is stalled highlights that the deepening of integration and the faster attainment of EU goals is more important than the current (typically political) interests of a single Member State.¹⁷

The task of the EPPO is to investigate and prosecute the perpetrators of offences against the Union’s financial interests and offences which are inextricably linked to such offences. In addition, a similarly important task is to bring the perpetrators to court in the Member States. In that respect the EPPO undertakes investigations, carries out acts of prosecution and exercises the functions of prosecutor before the competent courts of the Member States, until the case has been finally disposed of (Article 4 of the Regulation).

Article 86 TFEU does not provide for the organisational framework, the specific powers and the procedural rules of the EPPO, so in this regard the Member States participating in the enhanced cooperation had to make a choice between the models developed by academia and had to strike a compromise for the common goal.

In addition to the compromises, the following basic principles determine the competences, powers and procedures of the EPPO:

• shared “jurisdiction” in respect of criminal offences falling under the material competence of the EPPO, giving priority to the EPPO,

• the framework is defined by the common rules of procedure, while the specific operative (investigative) measures and other judicial acts are defined by the relevant regulations in the given Member State,

17 Even though in the case of the EPPO, a special legislative procedure as per Article 86 TFEU was applied, which required unanimity.

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• during the investigations of the EPPO there is no need for mutual legal assistance, a Euro- pean Investigation Order or a joint investigation team,

• there is direct and immediate exchange of information within the organisation of the EPPO, as well as between the EPPO, the national law enforcement authorities, and the EU bodies,

• the EPPO closely cooperates with Eurojust, Europol (in particular in the field of criminal analysis), and OLAF.¹⁸

2.1. Material competence of the EPPO

Criminal offences affecting the financial interests of the Union, such as fraud, corruption, misappropriation and money laundering involving property derived from these are provided for in the Directive. Furthermore, the Directive provides for the punishable forms of attempt and of the act completed as well as of the complicity and the minimum level of criminal sanctions.

The other group falling within the material competence of the EPPO encompasses the criminal offences inextricably linked to the above. Article 86 TFEU mentions crimes affecting the financial interests of the Union that are defined by the Directive, whereas the basis for this competence is provided for in the Regulation. The definition to be applied is an autonomous concept of European Union law formulated by the Court of Justice of the European Union¹⁹ (hereinafter referred to as “ECJ”). At the same time, these other criminal offences (may) affect the financial interests indirectly (being inextricably linked), thus their inclusion ultimately does not prejudice Article 86 TFEU. Furthermore, the right to a fair trial and procedural economy also justify the establishment of this ancillary competence. Besides, the Regulation provides that the EPPO shall also be competent for offences regarding participation in a criminal organisation, ir respective of the dogmatic classification of criminal organisation in Member States. The Regulation sets out in Article 22(1) the priority of material factors when it provides that the EPPO shall be competent in respect of the criminal offences affecting the financial interests of the Union, irrespective of whether the very criminal conduct could be classified as another type of offence under national law.²⁰ Article 25 of the Regulation restricts the material competences of the EPPO set out in Article 22.

18 The activities of OLAF will continue to be necessary as its tasks and competences are different, although it may prepare the investigations of the EPPO. OLAF may continue to monitor all Member States and EU institutions, including the EPPO.

19 Preliminary rulings relating to Article 54 of the Convention implementing the Schengen Agreement concluded this notion, namely that the existence of a set of concrete circumstances which are inextricably linked together shall serve as the basis of identity of the material acts. See for example: Tóth (2018).

20 In September 2018, the Commission proposed that the European Council should extend the competence of the EPPO to cross-border terrorist crimes pursuant to Article 86(4) TFEU. This first requires an amendment of the Treaty, thus it has been discussed at a number of EU summits but no decision has been made yet. A further extension of the EPPO’s competence has also been considered to include the counterfeiting of the euro and cross-border corruption and money laundering not affecting the EU’s financial interests. This was first brought up by the European Parliament in 2016. See Békés–Gépész (2019), 39–49;

Communication from the Commission to the European Parliament and the European Council: A Europe that protects: an ini- tiative to extend the competences of the EPPO to cross-border terrorist crimes. Brussels, 12.9. 2018 COM(2018) 641 final.

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15 The EPPO’s material competences and its restrictions

Competence Definition (constituent elements) Fraud affecting the European

Union’s financial interests

Directive, Article 3

• first restriction Regulation, Article 25(2) / less than EUR 10,000

• second restriction Regulation, Article 22(1) / in the case of fraud committed in value added tax (VAT)

• third restriction Regulation, Article 22(4) / national direct taxes

• case allowing for discretion

Regulation, Article 27(8) / less than EUR 100,000

corruption Directive, Article 4(2)

misappropriation Directive, Article 4(3)

money laundering Directive, Article 4(1); Directive 2015/849, Article 1(3) (not Directive 2018/1673)

broadening the definition of “public official”

Directive, Article 4(4)

criminal organisation Directive, Article 8; Regulation, Article 22(2); Framework Decision 2008/841/JHA

inextricably linked other criminal offences

Regulation, Article 22(3)

• restriction Regulation, Article 25(3) / refrain from exercising its competence Source: the Author

2.2. Territorial and personal competence of the EPPO

The provisions of Article 23 of the Regulation describe the distinction between the national and supranational levels. The EPPO performs its investigation and prosecution tasks by virtue of the principle of European territoriality,²¹ i.e., its competence essentially covers the territory of the participating Member States, thus the procedural rules of the EPPO are similar to the provisions of internal procedural law. The latter function is of paramount importance, as the Regulation – once it enters into force – forms part of the national corpus of criminal procedure norms, it is directly applicable and has direct effect and, as a general rule, it prevails over national provisions.

21 At the core of the principle is the notion of integration, namely that the judicial systems of the various Member States should be regarded as if they were not independently functioning judicial systems of different states but rather as comprising a single judicial area. This means that the relations and division of tasks between the various units of the system would be governed not by a jurisdiction-based approach but rather purely competence/powers-based regulations. In the common European legal and judicial space, cooperation does not take place with the authority of a foreign state but rather with another competent judicial organ. In this space, nothing prevents the use of evidence collected by such other judicial organ, and there is also no obstacle to carrying out procedural actions in the geographical territory of the other Member State.

The fundamental feature of this principle is that, if implemented, conflicts of jurisdiction become conceptually obsolete and the procedural resources may and shall be allocated along the geographical (competence) and jurisdictional rules in criminal cases. Naturally, this also implies that the Member States’ power to punish is “dissolved in the common pool”, i.e., that Member States accept that they do not articulate and represent their power to punish independently. The principle has not yet been enacted in law, however, it is reflected to some extent in the operation of the EPPO. See Karsai (2015), 94–97.

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According to Article 23(a) of the Regulation, the EPPO may act in respect of offences within its competence where such offences are committed in whole or in part within the territory of one or several (participating) Member States. Conversely, in the case of VAT fraud, the restriction on the exercise of competence is that the EPPO may only proceed in cases of significance, provided that the offence involves the territory of at least two participating Member States, causes a total of minimum EUR 10 million damage (pecuniary loss), and otherwise the offence may be better prosecuted at Union level (subsidiarity).

However, the EPPO may also prosecute [Regulation, Article 23(b)] if the given offence is committed by a citizen of a (participating) Member State – and the previous rule is not applicable –, provided that a participating Member State has jurisdiction for such offences (also) when committed outside its territory. According to the wording of the Regulation, the extra-territorial jurisdiction rule of any participating Member State suffices for the application of Article 23(b):

this rule allows for the extra-territorial exercise of competences (enforcement of “jurisdiction”) in respect of offences committed by the citizens of participating Member States, provided that the criminal law of any participating Member State applies the principle of personality as grounds for jurisdiction (this is typically the case, although some Member States only apply the principle of personality above a certain gravity²²). This means in practice that the EPPO may prosecute a criminal offence falling within its competence, committed by a citizen of a participating Member State even if such criminal offence was not committed in the territory of a participating Member State.

The third rule extends the jurisdiction over EU officials. It provides that the EPPO shall be competent for offences committed outside the territories of the participating Member States by a person who was subject to the Staff Regulations or to the Conditions of Employment, at the time of the offence,²³ provided that a participating Member State has jurisdiction for such offence when committed outside its territory [Article 23(c)]. It is obvious that even the internal laws of a single Member State suffice for the application of extra-territorial jurisdiction for the offences committed by such persons, i.e., if there is at least one Member State that has extended its criminal law to offences committed by EU officials.

This rule clearly shows the current status of the criminal law protection of supranational interests that are distinct from Member State interests. Such interests exist (e.g., an EU official commits corruption as a result of which grants in third countries are paid without justification), however, the supranational jurisdiction must be conveyed by the regulations of at least one Member State.

22 For more details, see Sinn (2012).

23 Regulation (EEC, Euratom, ECSC) No. 259/68 of the Council of 29 February 1968 laying down the Staff Regulations of officials and the Conditions of Employment of other servants of the European Communities and instituting special measures tempo- rarily applicable to officials of the Commission, OJ L 56, 3.2.1968, 1.

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The application of the principle of territoriality will give rise to interpretation issues in the case of criminal offences (e.g., offences committed by the third country nationals and/or in the territory of third countries in relation to customs, duties or aid to developing countries) that adversely affect the EU’s financial interests, while the commission of the offence itself does not fall within the aforementioned criteria.

2.3. Organisation of the EPPO

The backbone of the organisational structure of the EPPO are the so-called European Delegated Prosecutors. They are Member State prosecutors selected and nominated to the position by the Member State pursuant to its own internal rules of procedure. These prosecutors do not cease to act as national prosecutors, instead, they have double legal status (“double hat”).

The EPPO is a single and indivisible Union body organised at a central level and at a decentralised level. The central level consists of:

• the European Chief Prosecutor,

• the College of European Prosecutors,

• the Permanent Chambers, and

• the individual European Prosecutors.

The European Chief Prosecutor is appointed for a non-renewable term of seven years. The candidate shall possess the qualifications required for appointment to the highest prosecutorial or judicial offices under the laws of his/her respective Member State, and his/her independence shall be beyond doubt. The selection shall be based on an open call for candidates, to be published in the Official Journal of the European Union. The European Parliament and the Council shall appoint by common accord the European Chief Prosecutor from among the candidates selected from the applicants. The College of European Prosecutors shall appoint two European Prosecutors to serve as Deputy European Chief Prosecutors.

Each participating Member State shall appoint one European Prosecutor pursuant to its own internal rules of procedure. The European Prosecutors are members of the so-called Perma- nent Chambers. They supervise and monitor the investigations and transparency activities that are conducted by the so-called European Delegated Prosecutors in their respective Member States.

The European Delegated Prosecutors conduct the specific procedures in the Member State and belong to the EPPO’s decentralised level. The following figure describes this two-level organisational structure and indicates the links to the police (investigating authorities) and the courts.

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18 Figure 1

Source: The Author’s compilation based on the figure used in a presentation by Hans-Holger Herrnfeld at the Academy of European Law on 7 February 2020.

The College of European Prosecutors consists of all European Prosecutors (i.e., the European Chief Prosecutor and one European Prosecutor per Member State). The College shall meet regularly and shall be responsible for the general oversight of the activities of the EPPO. It shall take decisions on strategic matters, and on general issues arising from individual cases, in particular with a view to ensuring coherence, efficiency and consistency in the prosecution policy of the EPPO throughout the Member States. The College shall not take operational decisions in individual cases (Regulation, Article 9).

The most important organisational unit of the EPPO is the system of Permanent Chambers.

Permanent Chambers should be chaired by the European Chief Prosecutor, one of the deputy European Chief Prosecutors or a European Prosecutor, in accordance with the principles laid down in the internal rules of procedure of the EPPO. In addition to the Chair, the Permanent

THE EXERCISE OF THE EPPO'S COMPETENCE

Consequences

or EU officials If approved by

national authority If exclusively a predicate offence

Regulation Article 25 (2)

§ Damage less than 10 thousand euros?

THE PROCEDURE OF THE EPPO

Not punishable more severely than offences affecting financial interests Offences affecting financial interests;

Directive 2017/1371

Offences committed in a criminal organization; Framework Decision 2008/841

Inextricably linked other criminal offences No greater damage suffered by other aggrieved parties YES

NO YES

NO YES NO

Regulation, Articles 22 and 25

Regulation Article 25 (3) b)

§

Regulation Article 25 (3) a)

§

Regulation, Article 23 (a) and (b) State where the offence is committed

for the final Race decision The procedure

of the EPPO

YES NO

CRIMINAL PROCESSES INVOLVING PARTICIPATING AND NON-PARTICIPATING MEMBER STATES I. > Offences committed in the territory of more than one state

2

European ne bis in

idem

Hungarian prosecution;

legal assistance

Member State court procedure;

final decision

Hungarian prosecution + final decision in Hungary The EPPO

has competence Hungary

has competence Decision to prosecute

YES

NO

Immunity / Impunity Participating

Member State

1

Facts extricable from

each other

Facts inextricably linked to each other

Hungary Hungary

The perpetrator’s nationality may result in a different

competence formula if the perpetrator is a Hungarian national.

§

See figure 5

Participating Member

State Facts

extricable from each other

The EPPO has competence

The procedure of the EPPO

idem

idem Member State court procedure;

final decision?

Hungary has competence

Decision to prosecute

Hungarian prosecution + final decision in Hungary?

State where the offence is committed

final decision?

Hungary has competence The EPPO has

competence

YES NO

idem

4 3

If the participating Member State has extraterritorial competence

The perpetrator’s nationality

§

If the offence committed by a Hungarian national affects more than one country

(including Hungary), the competence formula depends

on whether the facts are inextricably linked to each other.

See figure 4

CRIMINAL PROCESSES INVOLVING PARTICIPATING AND NON-PARTICIPATING MEMBER STATES II. > Where the perpetrator is a Hungarian national

Regulation, Article 23 (a) and (b)

State Hungary Participating

Member

State Hungary

for the final Race decision

Court DE

Court IT DE

European Delegated Prosecutor

DE Investigating authority

FR Investigating authority

IT Investigating authority

College of European Prosecutors DE

European Prosecutor

AT FR ...

European Chief Prosecutor

NATIONAL LEVEL

IT European

Prosecutor European

Prosecutor European Prosecutor

EPPO

THE ORGANISATIONAL STRUCTURE OF THE EUROPEAN PUBLIC PROSECUTOR'S OFFICE I.

FR European Delegated Prosecutor

IT European Delegated Prosecutor

Court DE

Court IT DE

IT Investigating authority AT

Permanent Chamber

EE

FR IT ...

NATIONAL LEVEL

DE European

Prosecutor European

Prosecutor European Prosecutor European

Prosecutor European

Prosecutor

THE ORGANISATIONAL STRUCTURE OF THE EUROPEAN PUBLIC PROSECUTOR'S OFFICE II.

EPPO

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19

Chambers shall have two permanent Members. The number of Permanent Chambers, and their composition, as well as the division of competences between the Chambers, shall take due account of the functional needs of the EPPO and be determined in accordance with the internal rules of procedure of the EPPO (Regulation, Article 10).

The Permanent Chambers shall direct and monitor the investigations and are responsible for the uniformity of the procedures, thus the Permanent Chambers are the backbone of the EPPO.

Figure 2 reflects the system and organisational links of the Permanent Chambers.

Figure 2

THE EXERCISE OF THE EPPO'S COMPETENCE

Consequences

or EU officials If approved by

national authority If exclusively a predicate offence

§ Damage less than 10 thousand euros?

THE PROCEDURE OF THE EPPO

Not punishable more severely than offences affecting financial interests Offences affecting financial interests;

Directive 2017/1371

Offences committed in a criminal organization; Framework Decision 2008/841

Inextricably linked other criminal offences No greater damage suffered by other aggrieved parties YES

NO YES

NO YES NO

Regulation, Articles 22 and 25

Regulation Article 25 (3) b)

§

Regulation Article 25 (3) a)

§

Regulation, Article 23 (a) and (b) State where the offence is committed

for the final Race decision The procedure

of the EPPO

YES NO

CRIMINAL PROCESSES INVOLVING PARTICIPATING AND NON-PARTICIPATING MEMBER STATES I. > Offences committed in the territory of more than one state

2

idem

Hungarian prosecution;

legal assistance

final decision

Hungarian prosecution + final decision in Hungary The EPPO

has competence Hungary

has competence Decision to prosecute

YES

NO

Immunity / Impunity Participating

Member State

1

Facts extricable from

each other

Facts inextricably linked to each other

Hungary Hungary

The perpetrator’s nationality may result in a different

competence formula if the perpetrator is a Hungarian national.

§

See figure 5

State Facts

extricable from each other

The EPPO has competence

idem

idem Member State court procedure;

final decision?

Hungary has competence

State where the offence is committed

final decision?

Hungary has competence The EPPO has

competence

YES NO

idem

4 3

If the participating Member State has extraterritorial competence

The perpetrator’s nationality

§

If the offence committed by a Hungarian national affects more than one country

(including Hungary), the competence formula depends

on whether the facts are inextricably linked to each other.

See figure 4

CRIMINAL PROCESSES INVOLVING PARTICIPATING AND NON-PARTICIPATING MEMBER STATES II. > Where the perpetrator is a Hungarian national

Regulation, Article 23 (a) and (b)

State Hungary Participating

Member

State Hungary

for the final Race decision

Court DE

Court IT DE

IT Investigating authority

College of European Prosecutors DE

European Prosecutor

AT FR ...

NATIONAL LEVEL

IT European

Prosecutor European

Prosecutor European Prosecutor

EPPO

THE ORGANISATIONAL STRUCTURE OF THE EUROPEAN PUBLIC PROSECUTOR'S OFFICE I.

Court DE

Court IT DE

IT Investigating authority AT

Permanent Chamber

EE

FR IT ...

NATIONAL LEVEL

DE European

Prosecutor European

Prosecutor European Prosecutor European

Prosecutor European

Prosecutor

THE ORGANISATIONAL STRUCTURE OF THE EUROPEAN PUBLIC PROSECUTOR'S OFFICE II.

EPPO

Source: The Author’s compilation based on the figure used in a presentation by Hans-Holger Herrnfeld at the Academy of European Law on 7 February 2020.

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20

Each participating Member State shall nominate three candidates for the position of European Prosecutor. The Council, after having consulted the selection panel, shall appoint one of the three candidates. European Prosecutors are appointed by simple majority for a non-renewable term of 6 years, which may be extended for a maximum of three years. European Prosecutors act as liaisons for their own Member State of origin, i.e., they serve as the communications channel between the Permanent Chambers and the European Delegated Prosecutors. In close cooperation with the European Delegated Prosecutors, they supervise the performance of the tasks of the EPPO in their own Member State. In addition, they make sure that all relevant information received from the Central Office is delivered to the European Delegated Prosecutors and vice versa. In exceptional cases, they may also conduct investigations themselves: according to the Regulation, after having obtained the approval of the competent Permanent Chamber, the supervising European Prosecutor may take a reasoned decision to conduct the investigation personally, where this appears to be indispensable in the interest of the efficient investigation or prosecution by one or more reasons defined in Article 28(4) of the Regulation. In such exceptional circumstances, Member States shall ensure that the European Prosecutor is entitled to order or request investigative and other measures and that he/she has all the powers, respon- sibilities and obligations of a European Delegated Prosecutor.

Apart from these exceptional cases, the operative work is performed by the European Delegated Prosecutors working in the Member States. The European Delegated Prosecutors shall act on behalf of the EPPO in their respective Member States and shall have the same powers as national prosecutors in respect of investigations, prosecutions, and bringing cases to judgment.

The European Delegated Prosecutors shall be responsible for those investigations and prosecutions that they have initiated, that have been allocated to them, or that they have taken over using their right of evocation. The European Delegated Prosecutors shall follow the direction and instructions of the Permanent Chamber as well as the instructions from the supervising European Prosecutor.

The European Delegated Prosecutors are subject to the so-called “double hat”, i.e., they are an integral part of the EPPO, and therefore they exclusively act in the name and on behalf of the EPPO in all investigations and prosecutions conducted by them. Their legal status in this regard is independent, and it differs from the legal status of Member State prosecutors. According to the Regulation, however, they should, during their term of office, also remain members of the prosecution service of their Member State and should enjoy the same powers as Member State pro s ecu tors. The European Delegated Prosecutors may also exercise functions as Member State prosecutors, to the extent that this does not prevent them from fulfilling their obligations as European Delegated Prosecutors. In the event that a European Delegated Prosecutor is unable to fulfil his/her functions as a European Delegated Prosecutor because of the exercise of functions as a Member State prosecutor, he/she shall notify the supervising European Prosecutor, who shall consult the competent national prosecution authorities in order to determine whether priority should be given to the exercise of the functions as European Delegated Prosecutor.

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21

The Chief European Prosecutor had already been appointed, and the majority of participating Member States had also proposed European Prosecutors, however, the Council had not accepted the list until the finalisation of this study on 30 November 2020. No EU law provides for special requirements in relation to the European Delegated Prosecutors, however, it is in the interest of each Member State to nominate candidates who speak several foreign languages, are expe- rienced in international cooperation and have a spotless professional track record.

The absence of an open tender in the selection of European Prosecutors may be brought up as a deficiency, as nomination by the Member States may be viewed as a clear sign of political influence. The lack of transparency is also obvious, however, it is beyond doubt that in this case a political compromise had to be found in order to continue the project. As part of the package, Member States, who will have no influence over the operation of the EPPO, retained a certain level of control at least in the selection process of European Prosecutors. Despite the forego- ing, it is possible that, after a few years of operation, the selection process will be changed to a tender system as part of the inevitable reforms.

There are no European Union rules in place to protect European Prosecutors and European Delegated Prosecutors from dismissal, i.e., they may be dismissed from the respective Member State’s prosecution service pursuant to the rules of the Member State, which gives further reason for concern. Similarly, there are a number of open issues in cases where prosecutors wearing a “double hat” are subjected to disciplinary action or accused of a crime in their respective Member States, whether or not such action is justified.

2.4. The procedural baseline of the EPPO

The task of the EPPO is to investigate and prosecute the perpetrators of offences against the Union’s financial interests and offences which are inextricably linked to such offences, as well as to bring the perpetrators to court in the Member States. In that respect the EPPO undertakes investigations, carries out acts of prosecution and exercises the functions of a prosecutor before the competent courts of the Member States, until the case has been finally disposed of (Article 4 of the Regulation). Where a suspicion of an offence within its competence is identi- fied, the EPPO shall open the investigation or, where the national authority has already initiated proceedings, the EPPO shall evoke the case within five days (Article 27 of the Regulation).

The EPPO’s competence is primary but not exclusive. It has the right of evocation but refrains from exercising its competence in specific cases. This amounts to the recognition of the principle of opportunity,²⁴although if the EPPO does not exercise the right to conduct the procedure,

24 The institution of criminal proceedings may be generally mandatory if the investigating or judicial authority becomes aware of a criminal offence or a suspicion thereof (this is the so-called “principle of procedural legality”) or, according to the other model, the institution of criminal proceedings depends on a discretionary decision of the investigating or judicial authority.

The European Public Prosecutor’s Oﬃ ce and Hungary